Sector watch - Odey's Al-Chalabi bucks negative trend in Europe

Fund managers in the Europe excluding UK sector have managed to retain positive returns despite the dismal market conditions.

In the 12 months to the end of February the average manager saw returns of 2.17%, a downturn to the previous year’s average returns of 11.86%, but significantly better than the outflows being felt elsewhere.

Feras Al-Chalabi (pictured), manager of the Odey Continental European fund, topped the table with a return of 14.26%.

Al-Chalabi has turned the fund’s performance round since this time last year when it was within the bottom 10 funds of the sector.

The manager, who took over from Hugh Hendry in 2005, put the fund’s performance down to its defensive positioning.

‘In a bear market success is as much about the sectors the fund has avoided. In this regard the fund was quick to identify the onset of the credit crunch and to sell all positions in the financial sector and in small and mid-cap equities early in 2007.’ He said

Al-Chalabi is cautious for 2008. He said that with the US in recession and Europe showing signs of distress, particularly with Italy bordering on recession and Spain showing a nine-year high in unemployment, the demand picture for Europe looks challenging.

‘This is compounded by rising wage costs as unions in Germany play catch-up, and this will dent profitability in 2008,’ he added.

Newton’s Rajesh Shant, manager of the firm’s Continental European and European Higher Income funds, also made the shift from bottom to top of the table.

He was second in the sector with a return of 9.49% over the review period.

A-rated Colin Stone, manager of Fidelity’s European Opportunities fund, stood at third place with a 9.25% return followed by Jupiter’s European manager, Alex Darwall, at 8.38%.

A –rated Guillaume Rambourg, who co-manages the Gartmore European Selected Opportunities fund alongside A-rated Roger Guy, came in at sixth place with returns of 6.19%.

‘Following from the market’s dislocation during the year, we sought to reduce our exposure to financial stocks. In this environment, we looked to large caps with robust balance sheets and visible earnings to drive performance due to a flight to quality,’ he said.

He added that although the economic outlook is widely expected to weaken over the coming months he feels valuations on the whole remain supportive, while fundamentals are still attractive.

He issued a note of warning, however, saying that exercising caution and maintaining a long-term perspective will be paramount to riding out volatility in 2008.

Rupert Morrell, manager of the Premier European Growth fund, delivered the worst performance, factoring in losses of -5.18%.